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Estimates of the recoverable natural gas resources in British Columbia's Horn River Basin now appear to average around 37 Tcf, which would be comparable in size to the gas reserves of Alaska's North Slope, a preliminary analysis by Wood Mackenzie suggests.

If the estimates hold, the economic returns from the emerging Canadian basin would be in line with other major global gas supply projects, says Wood Mackenzie's Fraser McKay. In the report he authored, "The Horn River Basin: A New Resource Play on a Global Scale," McKay estimates that the basin's current estimated reserves would require a Henry Hub price of US$6.50/Mcf to achieve a 10% rate of return.

The analysis follows three announcements since the beginning of the year that tout the basin's over-the-top gas reserves potential.

EOG Resources Inc. in February estimated that its Horn River acreage could hold 6 Tcf of reserves (see NGI, March 3). Calgary-based EnCana Corp., which has been the busiest operator in the basin since 2001, formed an area of mutual interest with Apache Corp. and together they control more than 400,000 acres at the center of the play; Apache's net stake is 207,000 acres (see NGI, Feb. 11). Apache estimated earlier this month that its acreage may have a net reserve potential of 9-16 Tcf in the Ootla area (see NGI, May 5a).

"The three Horn River resource announcements intimated rock properties and well scenarios which were highly consistent; each suggesting the play could be even more prospective than Texas' prolific Barnett Shale," says McKay. "The potential resources are world-scale." EnCana, he notes, has not issued much information about its potential resources, but he says it likely is close to Apache's, which puts Wood Mackenzie's preliminary resource estimates at 37 Tcf.

McKay notes that the resource estimates are still preliminary based on only a "few well results," but "current estimates indicate recoverable resources in the region of 37 Tcf, and this could easily grow to over 50 Tcf should the play prove economic over the majority of the leased acreage or if recovery factors increase to those currently being achieved in parts of the Barnett."

Besides Apache, EnCana, EOG and Nexen, "several companies have large acreage positions but have not released resource estimates, mainly due to the fact that little work has so far been carried out on their acreage," he notes. Devon Energy Corp. and Quicksilver Resources Inc. hold acreage in the play, along with ExxonMobil Canada and Imperial Oil Ltd., which have partnered to explore 115,000 acres (see NGI, May 5b).

"Assuming a similar Bcf/acre resource potential, Imperial, Quicksilver and Devon would all hold multi-Tcf potential, with the impact on Quicksilver -- given its small relative size -- being potentially hugely significant," says McKay. Quicksilver, headquartered in Fort Worth, TX, operates in Canada through its Calgary-based subsidiary Quicksilver Resources Canada Inc., formerly known as MGV Energy Inc. Quicksilver earlier this year acquired 19 licenses covering 127,000 net acres in the Horn River Basin (see NGI, April 14).

"In contrast to many major global exploration plays, British Columbia represents a politically and fiscally stable environment," McKay notes. "Challenges faced during the development of this huge resource will likely be beneath rather than above ground. Projects in the play may be considered eligible for an incentivized royalty scheme proposed by the British Columbian provincial government, and if so, only the highest cost scenarios would not make a 10% rate of return."

British Columbia's proposed royalty regime "is a progressive system which has been created in collaboration with industry to encourage the development of the province's more remote resources," says McKay.

Despite its potential, the Horn River Basin presents challenges, according to Wood Mackenzie upstream analyst John Dunn.

"There are many obstacles to full-scale development of the Horn River play, including land access, relatively limited regional infrastructure, regional price differentials and high costs," Dunn says. "However, our preliminary analysis, which considers possible economic returns over a range of cost, resource and price scenarios, suggests reasonably robust economics despite these factors."

The current resource estimates "are based on extrapolations from relatively few wells and will require to be firmed up through further drilling and analysis of long-term well performance," Dunn notes. "However, with conventional Western Canadian gas production in decline, the emergence of shale gas as a future source of supply could be vital in maintaining Canada's position as a major producer of natural gas."

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Natural Gas Intelligence (NGI), is a leading provider of natural gas, shale news and market information for the deregulated North American natural gas industry. Since the first issue of Natural Gas Intelligence was published in 1981, NGI has provided key pricing and data relied upon daily by thousands of industry participants in the U.S, Canada and Mexico as well as Central and South America, Europe and Asia.